Why Microtransactions are the Right Metric for Artists. Not Sales or Streams.

brandon@, tkthelegend@


This article is written as a collaboration between Brandon Tory (Artist & Founder at FORMLESS) and TK (Founder at Campfire XYZ and one of the world's most successful artists & innovators in the Music NFT space).

Above is a SHARE pay-for-access (PFA) smart contract for ETERNAL GARDEN by TK. This contract exists permissionlessly on blockchain technology––anyone can put it anywhere on the internet, but access results in payment flowing to TK and his collaborators.

The playlist is free for holders of the ETERNAL GARDEN NFT available on Sound XYZ, and requires a simple micro-transaction in either fiat or crypto for others.

You can learn more about SHARE here.

Part 1 by Brandon Tory


A sale is a certain kind of transaction. Transactions are atomic exchanges of value. What this means is that either both parties receive the value, or none do. There is no middle ground. In music, historic sales were based on the idea that a physical item could represent the fundamental value of a song––the experience. This worked extremely well. It's why artists were able to sell mixtapes out of their trunk. The value was the song, the atomic transaction was the physical item (song) in exchange for money––done.

Piracy and Commoditization

This fell apart when songs became digital because they could be so easily replicated that we needed something even easier than replication. In came streaming. Streaming was so easy that people stopped pirating. But streaming took away the transaction between artist and consumer, and instead commoditized the entire industry, such that the transaction became consumer : streaming service (a single transaction). As a result, there's no value of one song vs. another, all songs are the same (from a business perspective). But this is a massive oversimplification of the dynamics of music. The music market is not one large market, it is a collection of micro-markets. <creator : audience> pairs. Each of these micro-markets has a wildly different value system, and commoditizing the entire industry means a missed opportunity for everyone. 

By reducing the number of transactions to one, (e.g. the signup for streaming service transaction), we've eliminated the ability for the consumer to signal value for a given song. Today we offset this by using the number of streams to represent that value, but that can be problematic for at least two reasons: (1) streams are not always voluntary––they work much more like radio (2) streams can be faked, because there's virtually no transactional cost associated with a stream. This phenomena is, in my opinion, what has sent artists into a spiral that rarely leads toward profitability or healthy sustained growth.


The modern solution to this problem, and the reason many of us are excited about Web3, is the NFT. But there's a catch. NFT sales are not strictly transactions. This is because the value exchanged in most NFT sales is not always atomic. There is a promise of future value, e.g. a secondary sale, or some experience associated with ownership of the token. In some instances this works really well, but it doesn't scale. The reason is that as an artist you cannot both maximize business revenue from NFT sales and take on additional future commitments associated with past sales at a pace that is sustainable. NFT sales are really good, they just (in my opinion) aren't enough to sustain a full-time career as an artist at macro-scale, particularly under bear market conditions. The beauty of a transaction is that it is atomic. The value for both parties is fully realized at the time that the transaction settles.

So What?

I'm going to jump forward here to the question I assume many may have––"We've heard this before, this is why people sell music directly from their website, and that's not a magic bullet".

I believe this is a true and valid statement. While you can sell music directly from your own website with no intermediary and benefit from a purely transactional model, this paradigm comes at a sometimes fatal cost: you don't have any interoperability with popular user interfaces, meaning listeners would need to understand 100 different websites to listen to 100 different artists. This clearly does not work. And this is where Web3 shines. For the first time ever, there is a technology which allows creators to distribute media (including music) into an application agnostic layer, which can both (A) facilitate transactions and (B) interoperate with other standard technology. What does that mean? It means the same playlist you're viewing above can appear (and be monetized) in other applications such as SpinAmp, MusicOS, Instagram, OpenSea and even Spotify, because the technology is permissionless and decentralized.

The difference between hosting a song on your website and hosting a song contract on the blockchain is similar to the difference between a bicycle and a spaceship. They both move, but the speed of distribution can't be overstated. A blockchain contract enables any application to drive transactions to your work, with terms set by the creator once. What's perhaps even more exciting is that consumers can make money too by re-distributing creative work.

Consumers in the Future

I mentioned consumers above and this brings us to perhaps the most important question. How does the consumer fit into this future vision of decentralized media? I believe this is where the battle will be won. Consumers certainly aren't interested in transacting for every listen of a song, but I think we have to circle back to the definition of the "consumers" and "songs". These are not two groups, these are hundreds of thousands of different small groups. Some consumers may transact for some songs, and some may not. The only way this can be truly optimized for all parties is by introducing market dynamics, rather than static blanket contracts, and letting people decide. This is uniquely possible with smart contract technology, since every song requires a contract that specifies the rights holders and terms of use. There's no other scalable way to implement dynamic music contract terms for millions of songs. Second, we have to consider that modern UX can make this entire process invisible to the user. Transactions don't strictly require an exchange of ownership, meaning consumers don't need to own the listen to the song. They just need access as part of the value exchange. This means that in most cases they don't actually need a crypto wallet. This means streaming apps can build UX that feels exactly like Spotify, and that facilitates transactions all behind the scenes, but with 1000X impact for creators.

Part 2 by TK

Challenges & Opportunities

As both a musician and a listener of music, I have a unique perspective on the challenges and opportunities presented by the current system of content consumption. As an artist, I understand the difficulties of trying to make a living in the industry and being fairly compensated for my work. As a fan, I have often felt frustrated by the lack of control I have over how I spend my money on music and the lack of transparency in the payment process. That is why I am such a believer in the potential of a micro-transactional model for content consumption.

Under this system, music listeners would pay directly for the songs they consume, rather than paying for access to an entire library. This would allow for a more personalized and efficient system, in which fans only pay for the content they actually consume. By paying for music on a per-stream basis, fans can ensure that the money they are spending is going directly to the artists whose work they are enjoying. This would create a more direct and transparent relationship between artists and their fans, and would allow for a fairer distribution of funds.

As an artist, I can see the numerous benefits of this model. It would allow for a more direct connection with my fans and ensure that I am fairly compensated for my work. It would also allow for more flexibility in the way I choose to release and distribute my music. And as a fan of music, I can see the benefits for myself as well. I would have more control over how I spend my money on music and could directly support the artists I love.

Shifting the Way We Think

I understand that this model may seem unfamiliar to some, and it will likely require a shift in the way we think about paying for content. But I believe that it has the potential to create a more equitable and sustainable future for artists and the fans who support them. By directly supporting the creators of the content we love, we can help to foster a thriving and diverse creative community, driven by the expansion of the middle class in the music economy. Platforms like SHARE by Formless are already working to implement this model, and I am excited to see its growth in the future. It is my hope that this model will become more widespread and that it will help to create a brighter future for artists and fans alike.